Philippe Poggioli

The heightened volatility and unpredictability of US trade policy has made Europe more attractive to investors seeking stability and certainty, according to Philippe Poggioli, managing partner of Access Capital Partners, a leading European private equity firm focused on small cap buy-outs through primary fund commitments, secondary transactions and co-investments.

The fund manager sees strong opportunities in Europe, with Donald Trump’s return to the US government introducing greater stock market volatility and economic uncertainty in the world’s biggest economy. In contrast, European small cap buy-out returns have shown resilience in the last three years with superior liquidity for investors versus larger cap deals.

That has clearly resonated with institutional investors who are increasingly turning their attention towards investing in quality small cap businesses across Europe. “More broadly, there has been a visible shift of capital towards European assets, as the region is perceived as offering more predictable regulatory and economic conditions compared to the US,” Poggioli said.

“While trade tensions and protectionist measures in the US have moderated the pace of cross-border merger and acquisitions activity, these dynamics also encourage private equity firms to reassess their risk profiles, strengthen supply chains, and prioritise resilient sectors such as IT, healthcare, and business-to-business (B2B) services, spaces that are less exposed to global trade disruptions and supported by structural trends like digitalisation and demographic change. This context highlights the importance of adaptability and the importance of a focus on long-term value creation for investors.

“Small cap buy-out transactions lend themselves particularly well to buy and build strategies whereby private equity firms create European champions by aggregating several companies to consolidate a given sector around the best management team. This strategy is at the centre of their return pattern and is tremendously relevant in the fragmented European context,” Poggioli said.

The small caps sector, where companies are valued at less than €100m at entry, presents very different dynamics to the mid-caps and large caps sectors, according to Poggioli. While falling interest rates is positive for economies overall, it is not as important for small cap investments, where the quality of an underlying business is crucial for an investor’s return.

“While improved financing conditions and stable rates have supported overall market sentiment, they have not been the primary drivers of deal flow or valuations in the small cap space. Instead, factors such as the quality of the underlying businesses, local market dynamics, and the ability to execute operational improvements and drive value creation remained more influential,” he said.

More broadly, as interest rates stabilise and fall in some countries, improved access to debt is supporting renewed M&A activity, especially in the mid-to-large-market segment.

“This is expected to facilitate both new investments and exits,” said Poggioli.

“Despite global turbulence, Europe is increasingly seen as a relative safe haven, attracting capital seeking stability and diversification. Recent months have seen renewed inflows from both domestic and international investors, including US investors, as confidence in Europe’s economic recovery grows.

By Philippe Poggioli, managing partner of Access Capital Partners

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Philippe Poggioli

The European small-cap buy-out market offers strong opportunities for investors in 2025, according to managing partner at Access Capital Partners, Philippe Poggioli.

“The small buyout space in Europe offers a vast pool of investment opportunities, with around 450 established and emerging fund managers raising funds typically below €500 million.

“This market accounts for approximately 90 per cent of all buy-out deal volume in Europe, allowing us to be highly selective when deploying capital,” says Mr Poggioli.

Opportunities in this space have been mostly in sectors underpinned by major long-term trends such as IT and digitalisation, healthcare, and essential business services, which Mr Poggioli says offer strong resilience and significant growth opportunities.

“An example of a successful investment in our fund portfolio is a Dutch healthcare-focused secure communication software vendor, which through multiple add-on acquisitions, became a pan-European market leader.

“Today, the company is the market leader in electronic administration registration and online healthcare prescription. During the holding period, the fund manager guided the company’s management team in an ambitious growth strategy including an active buy-and-build strategy. The company has grown from €25 million in revenue and €8 million in EBITDA in 2018, to €71 million in revenue and €30 million EBITDA in 2024,” he says.

Mr Poggioli emphasises the resilience of the small-cap buy-out segment as supporting investor returns.

“Unlike larger buy-out transactions, which often involve significant leverage, smaller buy-outs adopt a more conservative approach to deal structuring, often with modest debt packages. This makes financing more accessible, with fewer risks linked to interest-rate fluctuations, enabling fund managers to continue deploying capital when the debt markets are tight and minimise leverage risk.”

Looking ahead, Mr Poggioli remains optimistic about the prospects for small-cap buy-outs in Europe and the potential for outperformance compared to larger buy-outs.

“This outperformance stems from managers’ access to a wider investment opportunity set, lower valuations at entry, more levers for value creation, and potential for higher EBITDA multiple expansion upon exit.

“The exit environment for small-cap buy-outs also remains favourable as they tend to have a wider range of exit options than their larger counterparts.

“Larger buy-out funds have been longstanding buyers of small private equity-owned companies, either as new investments or as add-on acquisitions to existing platforms.

“For instance, in 2024, we exited a UK-based provider of public cloud migration and IT services, generating a 3.5x gross money multiple and returning approximately €32 million. The company grew revenues fivefold, expanding its product and service proposition across the Microsoft stack and successfully completing four add-on acquisitions,” says Mr Poggioli.

However, careful manager selection by investors is required.

“With around 450 managers in the small and mid-cap space, the dispersion of returns is higher than among larger funds. Investors need to apply a disciplined and rigorous due diligence process to generate superior performance,” he says.

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Private equity funds focused on buying smaller companies typically outperform funds buying larger companies, with more attractive investment opportunities and lower buy in prices available in the small to mid-cap universe, according to analysis from fund manager Access Capital Partners.

Philippe Poggioli, managing partner with Access Capital Partners, said “smaller buyout funds offer potentially greater upside to investors compared to larger funds. This outperformance is the result of small-cap fund managers’ access to more investment opportunities, lower valuations at entry, more opportunities for value creation, and the potential for greater earnings expansion upon a sale”.

“Historically, small and mid-market companies have presented lower entry multiples for buyers. According to statistics from Access Capital Partners, S&P, Unquote, Epsilon Mid-Market Index and Clearwater International as of June 2021, the average multiple paid for companies with an enterprise value (EV) of less than €250 million has come c. 20 per cent lower than entry earnings multiples for larger businesses (typically above €250m EV) being bought by buy-out funds over the last 10 years,” he said.

“One primary factor driving this discount is that the small-cap private equity segment is less intermediated, and deals are often sourced through proprietary networks rather than through competitive auctions,” said Mr Poggioli.

The small and mid-cap segment makes up the bulk of the private equity space, accounting for 98 per cent of all private equity funds in the market and 90 per cent of all buy-out deal volume in Europe.

Access’ analysis^[1] reveals that upper quartile small and mid-sized buy-out managed funds, or those assets under management (AUM) of less than €1bn and with a €275m average, have outperformed larger managed funds (having more than €1bn with a €7 billion average size in AUM) on a net total value to paid in (TVPI) basis,^[2] as the chart below shows.

In explaining the more attractive returns, Mr Poggioli said smaller companies are usually less mature than large company target in terms of how efficient and developed their businesses are and offer the potential for greater growth and scale than buying larger businesses.

“As such, incoming private equity investors have more space of actions to drive growth by strengthening and supplementing management teams, improving operations and financial controls, introducing new product lines, expanding internationally, or increasing sustainability to capture long term strategic value. In contrast, large buy-out investments have in the past strongly relied on deleveraging to achieve returns,” he said.

“We anticipate our smaller buy-out funds to deliver net internal rates of return (IRR) greater than 15 per cent over 10 years. Our funds have also demonstrated much lower volatility in returns than listed markets across the cycles,” he said.

“Across the private equity market, returns on smaller buyout funds are strong. Based on Access’ analysis covering 518 European small and mid-cap private equity funds with AUM below €1bn over 1999-2021 vintages, first quartile funds have delivered an aggregate net IRR ranging between 15 per cent and 43 per cent per annum depending on vintages, while the 2007 vintage was the most affected by the major financial crisis, yet the performance remained solid at 15 per cent,” he said.

However, the dispersion of returns is higher among small and mid-cap managed funds than among their larger counterparts.

“As a result, investors need to apply rigorous due diligence process when selecting small and mid-cap funds to generate superior performance, he said.

“Still, smaller companies are ideally placed to serve as a platform for buy-and-build strategies, allowing for consolidation and external growth. As such, fund managers have increasingly been engaging in these strategies, which, if executed correctly, are a good way to deploy capital at reasonable valuations, promote revenue and cost synergies and create value. Such enlarged companies are more attractive to potential acquirers and investors and thus command a higher multiple upon exit than at acquisition,” said Mr Poggioli.

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